Business Accounting
Exam Answer Key
Course Introduction
Business Accounting provides students with a foundational understanding of accounting principles and practices essential for effective business management. The course covers key topics including the accounting cycle, financial statement preparation and analysis, asset and liability management, and the use of accounting information in decision-making. Emphasis is placed on interpreting financial data to assess organizational performance and ensuring compliance with relevant accounting standards. Through practical exercises and case studies, students develop the skills needed to analyze, record, and report financial transactions accurately in a business environment.
Recommended Textbook
Financial Accounting 10th Edition by Walter T. Harrison
Source
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Chapter 1: The Financial Statements
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Sample Questions
Q1) Shareholders of a corporation:
A)have limited liability for the corporation's debts.
B)have unlimited liability for the corporation's debts.
C)have unlimited liability for the actions of other stockholders.
D)receive dividends from the corporation without having to pay tax on the distribution.
Answer: A
Q2) Stockholders' equity is the stockholders' interest in the assets of the corporation.
A)True
B)False
Answer: True
Q3) Which statement about the statement of cash flows is FALSE?
A)Operating activities should be the company's main source of cash.
B)Purchases and sales of long-term assets are financing cash flows.
C)The payment of a dividend is a financing cash flow.
D)The payment of a note payable is a financing activity.
Answer: B
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Chapter 2: Transaction Analysis
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Sample Questions
Q1) A chart of accounts:
A)is used by an organization to determine the balance in all of their accounts.
B)lists all of the accounts of an organization in alphabetical order.
C)must be the same for all organizations.
D)lists all of an organization's accounts and account numbers.
Answer: D
Q2) A business purchased office supplies of $10,000 using a note.The business would:
A)debit Supplies for $10,000 and credit Accounts Payable for $10,000.
B)debit Supplies for $10,000 and credit Notes Payable for $10,000.
C)debit Note Receivable for $10,000 and credit Supplies for $10,000.
D)debit Note Receivable for $10,000 and credit Supplies Expense for $10,000.
Answer: B
Q3) On May 1,a business rendered legal services to a client and billed the client $2,200.The client promised to pay the business in one week.What journal entry does the business record on May 1?
A)Debit Cash for $2,200 and credit Service Revenue for $2,200.
B)Debit Cash for $2,200 and credit Retained Earnings for $2,200.
C)Debit Accounts Receivable for $2,200 and credit Service Revenue for $2,200.
D)Debit Accounts Payable for $2,200 and credit Cash for $2,200.
Answer: C
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Chapter 3: Accrual Accounting Income
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Sample Questions
Q1) Every adjusting entry must affect both the income statement and the balance sheet.
A)True
B)False
Answer: True
Q2) The Statement of Retained Earnings reports a company's net income or net loss for a period of time.Where does the dollar amount of net income or net loss come from?
A)Balance Sheet
B)Unadjusted Trial Balance
C)Trial Balance Worksheet
D)Income Statement
Answer: D
Q3) If deferred revenue has been earned by the end of the current period and no adjustment is recorded,net income for the current period will be understated.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Internal Control Cash
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Sample Questions
Q1) Another term for a "hot check" is:
A)electronic check.
B)outstanding check.
C)nonsufficient funds (NSF)check.
D)cleared checks.
Q2) Internal controls are designed to accomplish five objectives that include compliance with legal requirements,promote operational efficiency,safeguard assets,encourage employees to follow company policy and:
A)prevent misappropriation of assets.
B)prevent collusion.
C)prevent fraud.
D)ensure accurate,reliable accounting records.
Q3) Which of the following transactions requires a journal entry?
A)The bank charged $50 for a stop payment on a check.
B)The bank deducted $50 from your account incorrectly.
C)The bank collected a note receivable with interest on your behalf.
D)A and C
Q4) The cash-budget can span any length of time.
A)True
B)False
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Chapter 5: Short-Term Investments Receivables
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Sample Questions
Q1) The general ledger has a separate account receivable for each customer.
A)True
B)False
Q2) Uncollectible-account expense is included in Cost of Goods Sold on the income statement.
A)True
B)False
Q3) Jumpin Corporation uses the percent-of-sales method to estimate uncollectibles.Net credit sales for the current year amount to $2,000,000,and management estimates 2% will be uncollectible.The Allowance for Uncollectible Accounts prior to adjustment has a debit balance of $1,000.The amount of Uncollectible-Account Expense reported on the income statement will be:
A)$1,000.
B)$39,000.
C)$40,000.
D)$41,000.
Q4) The principal amount of a note is the amount borrowed by the creditor.
A)True
B)False
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Chapter 6: Inventory Cost of Goods Sold
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Sample
Questions
Q1) If inventory costs are decreasing over time,the income taxes paid using FIFO will ________ the income taxes paid using LIFO.
A)exceed
B)equal
C)be less than D)none of the above
Q2) The LIFO method assigns the most recent inventory cost to Cost of Goods Sold. A)True B)False
Q3) Cost of Goods Sold is an operating expense on the income statement. A)True B)False
Q4) A company can use the cost-of-goods-sold model to determine how much inventory to purchase.
A)True B)False
Q5) If ending inventory for a year is overstated,then gross profit for that year will be overstated. A)True B)False
Page 8
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Chapter 7: Plant Assets,natural Resources, Intangibles
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Sample Questions
Q1) Which of the following should be included in the cost of equipment?
A)Platform for the equipment
B)Employee training costs for the use of the new equipment
C)Testing costs to see if the equipment is working properly
D)All of the above
Q2) Tom's Roadside Burger Stand has a beginning balance in the Accumulated Depreciation-Equipment account of $200,000.The depreciation expense on the equipment for the year was $50,000.At the end of the year,the balance in the Accumulated Depreciation-Equipment account was $140,000.What was the accumulated depreciation on the equipment sold during the year?
A)$60,000
B)$90,000
C)$110,000
D)$150,000
Q3) The costs assigned to the Land account include attorney fees and survey fees paid to find the lot lines for the property in question.
A)True
B)False
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Chapter 8: Long-Term Investments: The Time Value of Money
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Sample Questions
Q1) Following U.S.Generally Accepted Accounting Principles,the fair value of a stock investment should be determined using ________.Assume the stock is listed on a publicly-traded securities exchange.
A)quoted prices in active markets for identical stocks
B)quoted prices for similar stocks
C)the investor's own estimates based on certain assumptions
D)the investor's educated guesses
Q2) On January 1,2014,Benson Corporation paid $800,000 to purchase 40% of the outstanding stock of Kroger Company.Kroger Company reported net income of $200,000 for the year ending December 31,2014 and paid cash dividends of $60,000 during 2014.On January 1,2015,Benson Corporation sells its entire investment in Kroger Company for $1,100,000.Benson Corporation will report a(n):
A)realized gain on the sale of $300,000.
B)unrealized gain on the sale of $300,000.
C)realized gain on the sale of $244,000.
D)unrealized gain on the sale of $244,000.
Q3) Bond investments are initially recorded at cost.
A)True
B)False
Page 10
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Chapter 9: Liabilities
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Sample Questions
Q1) Which type of lease will NOT increase a company's assets or long-term liabilities?
A)An operating lease.
B)A capital lease.
C)A lease that contains a bargain purchase option.
D)A lease that transfers title of the leased asset to the lessee at the end of the lease term.
Q2) When a business receives cash from a customer before earning the revenue,they credit:
A)Accounts Receivable.
B)Sales Tax Payable.
C)Accounts Payable.
D)Unearned Revenue.
Q3) Maturities of long-term debt due within one year of the balance sheet date are reported separately from long-term debt.
A)True
B)False
Q4) Lease payments are paid by the lessor.
A)True
B)False
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Chapter 10: Stockholders Equity
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Sample Questions
Q1) Pillsbury Company declares and distributes a 30% common stock dividend when it has 20,000 shares of $10 par common stock outstanding.The market price per share is $50 at the date of declaration.What journal entry is prepared?
A)debit Retained Earnings $300,000,credit Common Stock $60,000 and credit Paid-in Capital in Excess of Par-Common $240,000
B)debit Retained Earnings $300,000,credit Paid-in Capital in Excess of Par-Common $300,000
C)debit Retained Earnings $300,000 and credit Common Stock $300,000
D)debit Retained Earnings $60,000 and credit Common Stock $60,000
Q2) If a corporation has only one class of stock,it is understood to be:
A)preferred stock.
B)common stock.
C)participating stock.
D)redeemable stock.
Q3) A credit balance in Retained Earnings indicates that a company's lifetime earnings exceeded its lifetime losses and dividends declared.
A)True
B)False
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Page 12
Chapter
11:
the Income Statement, the Statement of Comprehensive Income
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Sample Questions
Q1) It is NOT the independent auditor's responsibility to determine whether the audited company's financial statements comply with GAAP.
A)True
B)False
Q2) The first paragraph of the combined audit report on financial statements and internal controls:
A)describes how the audit was performed in accordance with GAAP and other auditing standards.
B)describes a system of internal controls.
C)describes inherent limitations in a system of internal controls.
D)identifies the company and financial statements audited.
Q3) Which entity requires companies issuing publicly traded stock to have their financial statements audited by an external auditor?
A)Securities and Exchange Commission
B)Internal Revenue Service
C)Committee of Sponsoring Organizations
D)Financial Accounting Standards Board
Page 13
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Chapter 12: The Statement of Cash Flows
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Sample Questions
Q1) Using the indirect method of preparing the statement of cash flows,which of the following would be added to net income?
A)Depletion expense
B)An increase in accounts receivable
C)A decrease in accounts payable
D)A gain on the sale of property
Q2) Which of the following would NOT be reported in the operating activities section of a statement of cash flows using the direct method?
A)Cash paid for income taxes
B)Interest received on notes receivable
C)Loss on sale of equipment
D)Payments to suppliers
Q3) Net cash provided by operating activities is $2.3 million.Planned capital expenditures are $2 million.Depreciation expense is $1 million per year.What is free cash flow?
A)($700,000)
B)$300,000
C)$1,000,000
D)$1,300,000
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Chapter 13: Financial Statement Analysis
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Sample Questions
Q1) What do the price-earnings ratio and dividend yield have in common?
A)Earnings per share is the denominator for both ratios.
B)Earnings per share is the numerators for both ratios.
C)Dividends per share is in both ratios.
D)Market price per share is in both ratios.
Q2) A measure of a company's ability to collect cash from credit customers is the:
A)accounts receivable turnover.
B)days' payable outstanding.
C)inventory turnover.
D)cash conversion cycle.
Q3) The cost of capital is a weighted average of the returns demanded by the company's stockholders and lenders.
A)True
B)False
Q4) In vertical analysis:
A)a base amount is optional.
B)a base amount is required.
C)line items from balance sheets are examined only.
D)line items from income statements are examined only.
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